Effects of terrorism and economic policy uncertainty on economic complexity in Africa: A study of the moderating role of governance institutions

Abstract

Following the paucity of empirical evidence on the effects of terrorism and uncertainty on economic complexity in Africa and the moderating role of governance institutions on these relationships, this study raised two important questions. First, how are terrorism and uncertainty impacting on economic complexity in Africa? Second, how are governance institutions moderating the effects of terrorism and uncertainty on economic complexity in Africa? To answer these questions, the study employed pooled ordinary least squares and dynamic system generalized method of moments (GMM) estimators, with a panel of 33 African countries over the period 2010–2021. We find that the unconditional effects of terrorism and uncertainty on economic complexity in Africa are predominantly negative and significant. We also find that governance institutions predominantly have unconditional positive and significant impact on economic complexity in Africa but failed to moderate the adverse effect of uncertainty on economic complexity. However, trade openness, international tourism and lagged economic complexity are potent factors promoting economic complexity in Africa, while physical capital stock remained a deterring factor. The study concluded that policymakers and leaders in Africa should engage in collaborative efforts at the African Union level to promote high‐quality institutions, while simultaneously addressing the detrimental effects of terrorism and uncertainty on the continent.